Unreported tips could spell high workers’ compensation payout

Employers and employees in cash businesses often bluff, wink and nod their way around the edge of wage-and-hour law legality. But when it’s time to settle workers’ compensation claims, all the cards must go on the table.

A recent Florida workers’ compensation case shows just how wrong things can go when employers give their employees unrequested advice on reporting income. At issue in this case: The restaurant industry’s traditional—and illegal—practice of underreporting tip income.

Injury forces employer’s hand

A waitress at the Myakka River Oyster Bar injured herself on the job. Florida workers’ compensation benefits are based on the employee’s average weekly wage during the 13 weeks before the injury. In this case, the woman had been working for only six weeks when the injury occurred. So those six weeks were used to calculate her benefit.

At first it appeared as though she would not receive much. When the court looked at her earnings during that period, it found only $925.64, plus tips. But she testified that her employer told her to report only 10% of her tips. So the court multiplied by 10 her reported tips—yielding an average weekly wage of $591.77. As a result, the restaurant—or its insurance carrier—earned a much higher workers’ comp payout.

It’s none of your business

In many cases, it’s impossible for employers to know exactly how much their employees make in tips. Employers often have accurate records only if workers pool their tips or have some sort of tip-sharing arrangement. Restaurant employees often only report their tips in full when the total of their wages and tips do not meet the minimum wage. So employers are stuck with not knowing how much employees are making in tips.

In this case, the employer apparently succumbed to a paternalistic temptation to tell the employee to report only a small amount of tip income. The workers’ compensation judge called its bluff, and the employer lost the pot.

Bottom line:
How much or how little income employees report is up to the employee.

Employers have no business telling employees what income to report. As this decision illustrates, when it comes to calculating benefits, courts will consider it company policy if an employer suggests underreporting tip income. Don’t play your employees’ cards for them.

Tip credit and minimum wage

Florida’s minimum wage is $6.79 per hour. Florida law allows employers a tip credit of $3.02 per hour, meaning they must pay a minimum wage of $3.77 per hour. The state minimum wage is adjusted each year on Jan. 1. Florida’s minimum wage currently runs higher than the federal minimum wage, so most Florida employers must pay the higher state minimum wage.

The tip credit is designed to prevent employers from underpaying employees. It does not necessarily mean that the employee is receiving precisely $3.02 per hour in tips. Employers whose employees don’t pool their tips have little recourse if an employee claims more tip income than the tip credit would suggest when calculating workers’ compensation benefits.

Reminder: Employers must display minimum wage posters in the workplace showing employees what their rights are under both Florida and federal minimum wage laws.

Key points of Florida’s workers’ compensation system

The Florida workers’ compensation system is designed to protect employees who are injured on the job by replacing lost wages while they recover.

The system works as a no-fault guarantee. Employees who can show they were hurt while working are entitled to a portion of their earnings and paid medical care for their injuries. They needn’t prove that their employer was negligent. In exchange for the no-fault guarantee, the workers by law cannot sue for negligence and collect far more than just lost wages and medical payments.

In 2005, Florida’s Legislature modified the state’s workers’ compensation system. Under the new system, employers’ workers’ compensation carriers must pay compensation or benefits only when the workplace injury is more than 50% responsible for the worker’s condition. This determination is made based on medical evidence.

Some employees aren’t eligible for workers’ comp payments. For example, employees can’t collect benefits if they:

  • Are injured while under the influence of alcohol or illegal drugs or refuse to submit to a drug test following the accident
  • Are injured while attempting to harm themselves or unlawfully injure another person
  • Commit fraud with the intent of collecting benefits.

Benefits can be reduced if the worker is:

  • Injured after knowingly refusing to wear proper employer-supplied safety equipment (a 25% reduction in benefits)
  • A professional athlete (a 50% reduction).

Tips for reducing workers’ comp costs

One way to reduce your workers’ comp costs is to encourage employees to return to work as soon as they’re able. You can, for example, make available light-duty positions for injured employees who may not be ready to return to more demanding jobs. Work with your insurance carrier to develop a light-duty program.